A question from the FB page today:
Jerome shared with us he started learning about the Stock Market and recently about cryptocurrencies. He also managed to save some money aside and wonders where to invest with less risk of losing it.
First let us say that there is always a risk to lose all your investments, investing in Cryptocurrencies and in the Stock Market. With that being said, there are a wide variety of possible stock market investments, with a wide range of possible risks.
Some stock market investments are pretty safe and are likely quite a bit safer than investment in cryptocurrency. Some stock market investments are pretty risky and are likely quite a bit riskier than investing in cryptocurrency.
So, ‘Risk; is a relative term. The stock market would indeed be very risky is you are buying stock without knowing what you are doing and without analyzing the companies upfront.
Very often people buy stock based on somebody’s else opinion. Instead, should you learn how to determine yourself what would be good stocks to buy. You also set up safeguards to keep you from losing all your money.
For instance, when you buy a stock, you set a Stop Order. Let's say you buy shares of a stock at $20 a share. You've determined, by (for instance) studying the charts of that stock, that you would be willing to risk losing $2 a share in case its performance goes down. (Which is 10% of its price and your total investment)
So you buy the stock at $20 a share and set a stop order at $18 a share. In the worst-case scenario, the price of the stock drops under $18 a share, and the stock automatically sells itself. You lost only $2 a share.
But, if your research on the stock is correct, the price of the shares will go up long-term. Another example: the price of the shares rises to $30 a share. You've already determined if the stock goes that high, you will reset your stop order for $25 a share. That way, if the price goes down below $25, it automatically sells, and you've lost nothing, and even made some profit.
Those are just some examples for using safeguards when trading. When you invest long-term you might decide ETFs are the better option. Long-term they always go up (as the economy will overall go up long-term).
The big problem with the long-term investment would be the inflation or more specifically the hyperinflation. So be sure to read about those in the previous topics where we discussed them and gave good advice - how to protect yourself.
On the other end, the cryptocurrencies are extremely volatile which creates huge fluctuations in their price – some people made a fortune there, but the majority lost their money.
In general, nowadays, investing in well-performing stocks, companies and ETFs should be considered less risky than investing in cryptocurrencies.